Fractional Ownership And Blockchain Make Buying Prime Property In India Easier Than Ever

Under construction high rise buildings at Lower Parel and Worli, on November 23, 2017 in Mumbai, India. (Anshuman Poyrekar/Hindustan Times via Getty Images)

For young Indians, traditional ways of saving money such as low-yield bank bonds and gold are no longer attractive. Instead, the allure of higher returns in a short time period is prompting them to explore investment avenues such as mutual funds and real estate. Specifically, fractional ownership is gaining popularity with young Indians and a few Indian startups are democratizing this age-old investment method through technology.

Democratizing Large Scale Investments

Fractional ownership is the combined ownership of a single asset by multiple investors. Usually, every investor buys a certain percentage of the property and is legally registered as a co-owner. According to the India Law Journal, fractional ownership has been successfully implemented in Europe, Africa and the U.S but it is a relatively new concept in India.

Now, startups such as PropertyShare.in are popularizing fractional ownership in India by enabling small ticket investments in high grade developments in metros such as Bangalore, New Delhi and Mumbai. Cofounders Kunal Moktan and Hashim Khan wanted to build a platform that allows small ticket investments as low as $15,000 in high grade Indian real estate, at a time when the base investment amount ranges between $1 million to $6 million.

Commercial property in India, especially in cities like Bangalore and Mumbai, can now be owned by investing small amounts of money. (Photo Credit: IndiaPictures/UIG via Getty Images)

“Majority of young investors aged 25 to 40 are no longer happy with fully taxed interest rates offered by banks and are exploring investment opportunities that offer high risk-adjusted returns. Moreover, Indians love the idea of investing in rent-yielding real estate but until now, there has been no standardization or technology to support this process. Due to high ticket sizes, investments in commercial real estate are usually done by high net worth individuals. Now, through our platform, anyone can own a piece of high grade real estate,” says Moktan.

Commercial real estate investment made lucrative

The absence of Real Estate Investment Trusts (REITs) in India has deterred investments in commercial real estate. REITs offer a range of benefits to investors such as high dividends, transparency, diversification of investments and low risk on return on commercial properties. While India’s Securities & Exchange Board of India has approved a REIT platform for India, real estate norms are yet to be standardized to incorporate REITs while selling commercial property.

Moreover, the average investment in Indian residential properties in India is upwards of $95,000 and can go up to $235,000 in prime real estate areas such as Bangalore, Mumbai and New Delhi. However, rental yields seldom exceed 2-3% in these cities. Through PropertyShare.in, investors can earn up to 9% rental yields per month. “There is no product that provides 7-8% current yield and an equity upside on capital appreciation. Tenanted offices in India provide returns but have been inaccessible to retail investors mainly due to large ticket sizes, lack of liquidity and the inability to quantitatively analyse commercial lease structures,” said Moktan.

PropertyShare.in just closed a commercial property deal at Mumbai's Bandra Kurla Complex, which is one of the prime real estate pockets in the city and a bustling hub for major corporates. (Photo Credit: Kakade/Hindustan Times via Getty Images)

Before listing a property on PropertyShare.in, Moktan and his investment team cover four major areas – the platform will shortlist only India’s Grade A real estate developers and investment officers will choose only 1% of all the properties they survey. Valid certificates of completion and occupancy for the property must be provided, tenants must be large corporations or multinationals that will pay rent on time; and the property must be in a market that has less than 5% vacancy while providing investors the opportunity to participate in the property’s capital gains.

So far, PropertyShare has listed more than 75,000 sq ft of commercial real estate in India, totalling $11 million in investment. Moktan and his team began operations in Bangalore, which is one of India’s deepest corporate marketplaces in India today, and soon followed with investments in Mumbai and Hyderabad. Currently, the startup is listing properties in Pune, with Chennai, Kolkata and New Delhi expected to follow soon.

Legitimising property sales with blockchain

The Real Estate Regulation & Development Act (RERA) was introduced in India in 2016 with the purpose of making India’s real estate sector transparent and regulated. In addition, the country’s quick adoption of technology paved the way for Pune-based fintech startup RealX to introduce fractional ownership of real estate in India. RealX, along with assets registry solution provider Regko, provide digital certificates or frax to co-owners that authenticate their property transactions. “Frax are a new measure of real estate rights as they are crypto assets registered on a blockchain, making them immutable and verifiable," explains co-founder Manish Kumar. RealX closed its first blockchain property transaction in Maharashtra last year with 20 individuals investing together in a 150 sq ft commercial property.

"We are enabling real-time access to prime property in India, as well as providing a secure technology-centric platform to verify property transactions," says Kumar. "Both are firsts in India’s real estate sector.”